CW 604 Jon Lieber - Thumbtack Sharing Economy, Associate Director at the White House economic advisor to Senator Mitch McConnell

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Welcome to the Creating wealth show. This is episode number 604604 and this is your host, Jason Hartman. Thank you so much for joining me today. Our guest will be Jon Lieber and we will talk a little bit about the sharing economy and just some different interesting stuff. John is with Thumbtack Sharing Economy. He's an associate director at the White House, economic advisor to Senator Mitch McConnell. Anyway, we'll go into that, but before we do, of course we have a few other things. So first of all, greetings from beautiful Phoenix, Arizona that has the best weather in the world eight months of the year. Gosh, I miss this place. Word has it from my CPA that my tax write off in the socialist Republic of California has been achieved. So I am free to live anywhere now. I love being geographically independent. You know, for so many years I was of course in traditional real estate, which is a very, very localized business. In about 2008, I remember reading Tim Ferriss's book the Four Hour Work Week, which had a big impact on me. And it was really the first time I heard about this concept of being geographically independent and hearing about the concept of geo arbitrage, you know, he, he sort of made up his own language a little bit and I thought that was really interesting. And I thought, you know, I would love to be able to live anywhere and have a portable business. And now I do. You know, we had big offices, big overhead, lots of staff that came into the office every day. And for many years I agonized that, you know, what if we became a virtual company? What if we, you know, we did what some people call the no office solution. And by about 2009, 2010, I noticed that it was a challenge to get my staff to come into the office. Now of course the employee staff, you know, we could dictate their hours and say, hey, you gotta show up at 9 and you gotta work till 5 or 6 or whatever the deal was. But we also had a different kind of class of staff, the independent contractors who of course could make their own hours. And I realized I was having to kind of talk them into coming to work, you know, because they all wanted to work out of the house and you know, just kind of make their own schedule. And you can understand that. Anyway, I'm thinking about moving again because if I stay in California I'm going to have to start paying all that tax write off back. And if you don't know what I'm talking about, you are a new listener to the show or you haven't been to our events where I've talked about this in the past. So it's just kind of interesting. More to follow on that. Gosh. New York Times article. Really interesting New York Times article. That lefty publication, the New York Times, they had an interesting article about this. You know, it's really not news but I guess it changes and varies over time. It's all about this flood of Chinese money coming into the US real estate market. And we all know there is just a massive, massive amount moving into what I have called the very special American real estate market. And in I've said it before, many times, forgive me for repeating but when you look around the world you really begin to realize the US has a very, very special real estate market in so, so many ways. So this is November 28, 2015 article, you know, just recently there amazing, amazing stuff about the flood of money coming in. And you know they're talking about looser Chinese monetary policies or you know, government policies in terms of loosening capital controls. And that's one reason but really and you know investors seek as the stock market there has had some troubles. And I want to ask you this because I do not know the answer to this. So if you want to connect with me on Voxer. Jhart88 jhart88 Many of you have been doing that. We've only played one message so far and we are going to get a direct link so that the sound quality is vastly improved. Look for that in the future. But yeah, connect with me on Voxer and ask your questions that I can air on the show. You know, when you have a question, many other listeners, listeners do as well. And you know, maybe you can address this on a voxer message to me. Jhart88 and here is the big question that I have been pondering for decades, literally for decades. Being in the business as the stock market has its ups and downs, as it always does, very volatile type of investment there as it has its ups and downs. And when the stock market is hurting, does that actually improve the real estate market? Because investors look for a safe harbor which I think is certainly true of foreign investors. America has always been thought of as this brinks truck, the safe place to put your money, you know, abroad you just don't have the rule of law that we have in America. So you see this for flood of money always coming into America, you know, foreign direct investment, FDI coming in from South America, Central America, from Asia, from the Middle east, from Europe. Because the US always has been that brink struck, the safe place to put your money. And so the question is whether it's here or abroad, what happens when the stock market takes a dive? When there's a stock market crash, does that improve the real estate market or. Because money flows out of stocks and into real estate. So that's one concept but the other concept is well maybe people lose so much money in stocks that they just become gun shy in general and you know, or maybe they just don't have the money to invest, they just stick it in the bank. And I don't really know the answer to this. You know I've pondered it, I've thought of it certainly both ways from both sides for many years. I'd love to have you propose your ideas and your thoughts on that on voxer. So J. Hart 88 in addition to that, what have I been up to? Well I've been to back to back conferences. I spoke at the IMN Boy, what is that conference called? The Residential Rental Aggregation Conference. There's a name for you. I spoke at that conference in Scottsdale that ended on Friday and then I immediately checked out of the hotel in Scottsdale and moved over to a hotel here in Phoenix where I am now. And all weekend I've been attending an assisted living seminar. I've looked at that asset class for several years now, you know, with a graying of America. And it's interesting to me but I've always been kind of gun shy about it. I've never jumped in because of the concern about the complexity of running a business. Certainly not an investment per se, that's more of a business opportunity. And businesses, you know, they have a lot of moving parts. Of course you can make money doing lots of different things. But you know, it's just a difference in philosophy. Do you want an investment where you can give it a little bit of attention? Maybe at times when there are bumps in the road, you got to give it a little more attention, or do you want, you know, and that's an investment that doesn't require so much attention? Or do you want a business where maybe you give up your full time job and you're really actively engaged in something on a daily basis. So that's the distinction. And it's just been interesting to attend this conference and learn about it and you know, meet a lot of the players in the industry. So, you know, more to come on that we might even have them speak at the upcoming Meet the Masters event. Which, by the way, we literally only have eight tickets left. Eight. Just eight. That's it for Meet the Masters. So go to jasonhartman.com rush to jasonhartman.com and click on the events section and get your tickets for Meet the Masters while you can. Because I sure those are going to be gone really, really quickly. Okay, what else? So that's what I've been up to, Meet the Masters. Getting really excited about the Dubai trip coming up in February. We had a couple of people sign up as guests for that trip. So that's great. Remember, go to venturealliancemastermind.com we're lining up some great speakers and local hosts for us. We're going to do some really special stuff. You know, these are once in a lifetime experiences. So attend with us and we'd love to have you meet us in Dubai. That'll be a phenomenal event as well. So I'm going to play you another Voxer message. Please excuse the sound quality. I thought that this listener really, he asked me some tough questions and his goal, frankly may be unrealistic for the amount of money he wants to invest. But hey, you got a dream and you got a dream big, right? So you can listen to this volley. It's fun. Fairly long. I think I'm going to play it at double speed. That's one of the great things. A great little feature about Voxer. You can play it at faster speed and I may adjust the speed during the playback. So just listen in and I think you'll find this conversation to be pretty interesting. That's the great thing about that. You as listeners get to eavesdrop on these conversations. So call in and take advantage of that yourself. And then we will get to our guest right after this. Okay? So again, please excuse sound quality. It's not Great. But I think the information will be very interesting to you. Jason.

My name is Steve from Arizona. Using your system with turnkey properties, we're looking for to build a $15,000 a month passive income stream. We are area agnostic, like you say, and so we're open to whatever area that would be. But going through you guys, how much money would it take to build that kind of passive income with no leverage? Thanks very much. Take care.

Hey, Steve, thanks for the questions. I'm actually in Scottsdale right now and I'm speaking at a conference here, real estate conference. And that question is not super easily answered because it depends where you buy and what the expenses on the properties are. For example, the tax rates, the insurance rates, et cetera, et cetera. But very simply put, if you didn't use any leverage, you would be able to buy, and I apologize for the background noise. I'm actually walking around the resort here where the conference is. But if you didn't use any leverage, then, you know, very roughly, if you had, say, $1.5 million and you purchased, you used all of that and you bought 15 properties that rent for 1,000 per month each, and then you would net, say. Oh, it depends where, obviously, but you would net, say, $800 each for those properties. That would be 800 times 15. It wouldn't quite get you to your goal, but if you were to do maybe 1.8 million, that would probably get you to your goal or pretty darn close. But it really depends on the areas in which you buy because the property tax rates vary, the insurance rates vary and so forth. And then, you know, association fees. We don't like condos, as you probably know, but those are another thing that you have to keep in mind. Does that make sense? Do you have more questions? Happy to drill down and discuss it in more detail.

Hi, Jason, that's. That's awesome. Thank you for the quick reply. I've never tried Voxer, but you mentioned it. So this is really cool.

You're the first person that I'm talking with on this.

A plan that my wife and I had was we're looking in Indiana and, you know, $40,000 duplexes, rent ready, roughly $700 a month per side. You know, all we've got about is a million bucks, you know, all the money in our world, and $15,000 a month is kind of where we need to be. What do you think about Indiana and $40,000 duplexes rent ready? And, you know, that would be 25 of those. And that would that would get you there. Thanks.

Bye. I think Indiana as a geography is okay. I mean, it depends where in Indiana. You didn't say a city. So, you know, we've obviously done lots and lots of business in Indianapolis and we've had, you know, pretty good experiences. They're not perfect by any means. We've had one provider there that's been a problem for sure, but we got rid of that provider and replaced it with some, you know, some other good ones. And so. So what city are you talking about? But no matter where you say, I can tell you the answer already, $40,000 properties do not perform as well as you think. I mean, you might get lucky and they, they might on a one off basis, but generally speaking, those just don't work anywhere near as well as they seem because those are like C and D properties. And you know, the tenants are just. The experiences just are not good generally, they're not reliable and they always look much better on paper than they tend to work out in real life. Of course, there's an exception to every rule because it's an individual thing. It's a tenant by tenant thing. You can have an A class property and have a crappy tenant. You can have a D class property and have a great tenant. It's certainly possible, but by and large it doesn't work.

Hi, Jason. Yeah, you know, that makes a lot of good sense. You're right. I certainly don't want D neighborhoods because in my experience that means drugs, dogs and dead beats. Certainly not about that. But maybe, you know, if you got.

To take a minute, I don't want.

You know, you know, you don't need to respond right away, but you know, if you were down, you just get a million bucks and that was your burn rate, 15,000amonth, you know, where would you go, where would you stretch it, you know, as far as it can go, you know, versus, you know, like C class neighborhoods, you know, not war zones, but blue, blue collar, working class people, you know, small, multifamily. I think I can get, you know, a better lift, you know, from, you know, two or three or four doors, do punches, try puts the squats is what I'm looking for. But you know, where would be the sweet spot? You know, at $150,000 a property, you know, our money just doesn't go far enough. I think we can do better. Please take your time to respond to.

Me if you need to.

Call a couple of local providers on what the sweet spot better areas would be and let me know. Thanks again. This is, this is really fun to actually finally talk to you. I've been listening to your podcast a long, long time. Thanks. I hope to hear from you.

Bye. Bye. Hey, thanks. I'm glad you like it. And a lot of listeners have the same question. So I appreciate you, you know, sort of virtually coming on the show here through Voxer. And yeah, you know, those areas you're looking for are probably B and C plus areas and they will be a little more expensive. You can do that with 70, maybe $80,000 single family homes, depending on what market you're talking about. But there's a couple things. Number one, remember that income property is a multi dimensional asset class. So to get you in reality 15 grand a month versus cash of 15,000amonth, it's much harder to get that in actual cash flow. That takes a lot of capital because income property is not just about cash flow. That's one of the dimensions, but it's multidimensional. Of course, you know, I've talked about that on the podcast many times and live events. You know, you make the money from leverage, from appreciation, from tax benefits. You follow the refi till you die plan. But again, it takes, you know, a few years to get to that point where you can execute on refi till you die for sure, so. Or really several years, not a few. I mean, if the market goes up a lot and you have a lot of appreciation, you can get there faster. But those are the things to think about. So I really wouldn't get too stuck on that $15,000 cash flow number because I think you're going to inhibit yourself and maybe put off doing something. If you're so stuck to that thinking, you've got to get that number. And you also might make decisions that'll get you lower quality tenants, lower quality properties, which in the long run really won't work out as well. And I like your three Ds. What did you say? Drugs, deadbeats and dogs. Hey, the dogs are okay.

I love dogs.

But the other two aren't so great. So anyway, you know, and you also want to diversify. You want to be in more than one market. You don't want to have all your eggs in one geographical basket. So two to three markets for sure, not more than five would be my advice. Ideally three. And there are some thoughts for now. But what, what else do you think about my answer? Hi, Jason.

You know, your answer makes complete sense. Two or three areas that makes complete sense. Some political diversity, some geographical diversity absolutely makes sense. I didn't Think a million bucks was enough to spread too much around for the simple reason that I want enough doors from, you know, a property manager that will take my account seriously. You know, I wouldn't want three or five here and three or five there. At three or five there, I'd rather, you know, carry a bigger stick, if you know what I mean, when it comes to being taken care of. Well, you know, with obviously, you know, competent, honest property managers because of course without them, you know, Nothing performs. The $15,000 a month is where I've been in retail for 24 and a half years. And that's kind of where we need to be kind of raised by. We're big cash flow fans and just, they just have, you know, peace of mind financially. And I thought, okay, 15,000amonth, roughly 15% annually, you know, cash on cash return. I can appreciate, you know, all the tax benefits and stuff that make things look better on paper and that's great. However, it doesn't pay my bills, you know, I'm a cash flow investor first. I believe, like you, that, you know, that appreciation is, you know, the icing on the cake, you know, especially when, you know, you want out of the rat race, you know, soon. I just turned 48 and you know, I've been working really, really hard retail for 24 and a half years. And it's time to kind of build a business around the new life that I want to do as opposed to I always live my life around my business and I got it exactly backwards. And this is a reboot 2.0 for me and my wife Karen. And you know, long story short, we just want some freedom. I'd like to have full time income with part time efforts. Again, two or three areas make sense. Oh my three Ds were dog drugs, dogs and dead beats. And yeah, pets are okay, but you know, the way they all get together, right. Deadbeats always seem to have lots of pets for some reason so that, you know, that's what we've got. And you know, I'm hoping to get 50% cash on cash and I guess, you know, maybe, maybe like you said, $40,000 rent ready duplexes. And what I would like to see is C plus neighborhoods might only be good on paper. Let me ask you this though, are you coming at me with that answer? As a turnkey provider, I would assume that you would be or would that goal be doable if I was doing my own marketing direct to sellers and being in the front end, you know, in the front of the food chain talking to sellers and taking down deals, you know, just with, with the sellers and then, you know, fixing them up or whatever, getting them rent ready with that $40,000, you know, per duplex, be more accessible with a 15% cash on cash. If I was the person wholesaling to myself. Thanks.

So a lot of questions in there. Is it? I mean, if you're asking. Well, of course everything I say is filtered through my experience. That's how everybody is. So I can't help that. That's just natural for any human. But the $40,000 duplex, one more thing I forgot to mention before, remember the plexes also, regardless of the class of property. So even if it's a plex, duplex, triplex, fourplex, that's an A property or a B property, even those, because of the nature of the fact that they're just plexes, they will tend to attract a lower quality tenant. So downgrade like one grade if they're a plex, I would say. So in other words, if it's a B type property, but it's a plex, it's really going to get you a C tenant most of the time. So that's one other thing to consider now, although I don't know, maybe I don't really mean that because we've got some really high end plexus sometimes too that are like really nice. So that's not always true, but it's kind of generally true. Nothing's always true. But yeah, what you're saying is, you know, could you find properties and do your own rehabs and maybe get better deals? Sure, that's entirely possible, but it just depends on how much time you have to spend doing it and how good you are at sourcing properties and how, you know, whether you want to spend 50 grand a month mailing out yellow postcards. I mean, that's what, that's what our turnkey providers do. Okay? They have a whole business, a huge, they have huge operations that spend fortunes on direct mail and have people that knock doors to find properties and you know, they just comb the MLS every day and they form relationships with banks and you know, REO providers and you know, it's a whole business. It's like anything, it's like saying, look, if you're in the retail business, I don't know which part of it is, but there's always a supply chain in every business, just like real estate. So in retail clothing, you've got the manufacturer and then you've got, you know, reps and you Know, manufacturer rep type people probably. And then you've got wholesalers and retailers and, you know, the customer obviously pays a retail price, right? So same thing happens in real estate. There's a supply chain and everything. And if you move yourself up or down that supply chain, you may be able to get a better deal, but it won't be without risk and time and money invested. So I hope that helps and hope that makes sense as an answer.

Hi, Jason. No, that makes complete sense. You're right. If you get in front of the food chain, there's definitely more work. We are getting out of our retail business and we were thinking of going full time into real estate and, you know, maybe, you know, just building a business like you said, you know, with, you know, postcards and yellow letters and wholesale to ourselves until, you know, we get that magic number and, you know, double down. You know, build a, build a real estate business and invest. I think that's probably the right way to do it. And I've asked you this already, but let me see if I can reform this. Okay, Jason, maybe, maybe give a thought to. If you were down to your last million and you had to make 15,000amonth cash on cash, you didn't have 1.5, you didn't have 1.8, what would that look like for you? You know, try to put yourself in our shoes and say, this is all we've got and it has to be. What's the word? We can't be self managed. We have to outsource the management. I'm okay with doing my own wholesaling if that's what it takes, but I'd like some direction of a plan from you and some markets that would be favorable to that limited money with the 15% cash on cash annually return that we're looking for. I hope I'm not being too redundant. Thanks.

So it does seem like we're getting a bit redundant here. But you know, if you go to jasonhartman.com and you click on the properties page and you look at the properties there and you just look at the cash on cash return only, you know, you can get properties, you know, good quality properties in markets like Memphis, Little Rock, Indianapolis, etc. That will produce 11 to 13% cash on cash, probably okay, Those used to be better. You know, if it were four years ago, there were 15% cash on cash properties that were good quality properties and, you know, maybe you can't do it with a million dollars unless you go and source the properties yourself and you can get them for $15,000 less each. You know, if you, if you do all the legwork and do the mailings and do the prospecting and set up a real operation, you know, who knows what you can source them for, who knows what kind of deals you can get. But it's going to be hard to do that in multiple markets and it's going to be hard to be diversified. It's hard enough to do it in one market. Basically, you're becoming a local market specialist, in essence, in doing that. But of course, being around real estate is a great business, so I definitely encourage that. So that million dollars at say, a 13% cash on cash return, if everything goes according to the Performa, which sometimes it's better, sometimes it's not, not as good, sometimes it's worse, then you will get $130,000 per year right there. And you need, it sounds like according to your own goal, $180,000 per year. And then you look at the overall return on investment for those properties, which is projected at maybe 25 to 40% annually. Given that it's a multidimensional asset class and you earn return from all of the different places that you already know about, then you can see that in essence, your wealth is building at a rate of 250,000 to $400,000 per year based on the overall return. Although that doesn't show up in cash. I totally understand that. But a few years down the road or several years down the road, maybe you can do it in five, seven years. You exploit the refi till you die opportunity, and then you extract that wealth and that pays you back more than your $180,000 per year target. So you're actually doing better than you thought. But you don't get it all at once. You have to wait for it. So either, I guess it boils down to a few options. Number one, go source them yourself, try and find better deals, set up a real business, manage it, run it, you know, spend 40, 60 hours a week, invest capital, have a business and move yourself up or down, whichever way you want to look at it. The supply chain, I guess up the supply chain and do that. Run a business. Okay, so that's one option. Number two, invest more money. Or number three, invest the million now or the million five now, and get a return of maybe, you know, with good quality properties of maybe 11 to 13% cash on cash. And wait and be patient to extract more wealth out of the property and ultimately get paid back more. Of course, everything's a projection. Nobody knows how to work out for sure. Sometimes it works out a lot better, sometimes it's worse. Okay. So I hope that helps. And that's it for now. This is gonna be great content for the show. So thank you for, for using Voxer and coming on and a lot of people have the same question and we really talked it through pretty well. But if there is more reply and I'll address that as well.

Thanks, Jason. You've been actually most helpful. Thank you for that clear answer. Yeah, I will, I will definitely visit jasonartman.com on a regular basis and you know, look for those 13 percenters and, and kind of see what that looks like as far as, you know, areas and what those kind of properties look like. I think that sounds good. I think simultaneously once my wife and I go full time, I think, yeah, like you said, we'll go, we'll move up the food chain, see if we can, you know, build a business around, you know, actually for creating our own long term rental portfolio. But I can see why. Where, you know, you guys could definitely help me with that. Something else that I've always wondered. It doesn't seem like anybody wants to talk about this and maybe you have Jason or some other podcaster, but you know, the US is having some major, major issues. I agree with your take on the fact that, you know, the world reserve currency and they're backed by the military and I agree with that. That's actually a very interesting point of view and that actually makes sense to me. But you know, the US seems to be getting so crazy with debts and I often wonder, investing more, does that put us at future risk again? Like you said, you know, no one's.

Got a crystal ball, but you wonder.

If they're ever going to turn on desperation to real estate investors and maybe get rid of deductions, get rid of some or a large portion or all the incentives and all of us building our portfolio, building our lives around it, now it's wash and it's just, well, we've got to, you know, charge you outrageous property tax because the whole country is, you know, burning itself down through debts and just doesn't want to default and hit the reset button, which quite frankly I think would be, would be required to fix this thing. I do worry about long term safety of investing in any country that is simply burying itself in debt and nobody wants to hit the default button because it's politically unpopular and nobody wants to be on duty, you know, or cause that to happen. Love to know your thoughts on long term investing risk as Far as any kind of government becoming hostile to real estate investors and to, and to take away, you know, all the incentives or some of the large incentives that reason we do this in the name of patriotism and et cetera, et cetera, which of course you know as well as I do that that's not true. Love to have you weigh in on that. Thank you.

Hey, that's a great question. Some good thoughts there. First of all, on your own investments. We kind of got off track in our conversation back and forth there in that we didn't really talk much about leverage and you know, you said, well, we need 15,000amonth and blah, blah, blah. And we were sort of approaching this from a cash basis. But you know, of course if you leverage that portfolio, I mean, your returns can be a lot, lot higher, as you well know. So I just wanted to circle back on the leverage point because we really got off of that track. So that's the first thing. And then as far as the, you know, geopolitical situation, first of all, certainly the government can do whatever it wants. That is always a possibility. But they look for the low hanging fruit. And the low hanging fruit, I do not believe is real estate or income property investors. I think that's pretty hard to attack. I think it's very easy to attack people's IRAs that are in brokerage accounts and their stock portfolios because that's simply an electronic transaction and they can just go in a computer system and retitle those assets to pay the national debt or whatever. And I have talked about that on several podcasts and I think people's retirement plans are very much at risk. I do not think I'm being excessively paranoid when I say that. I think that is the first place they will look because there's a huge amount of assets and they're very easy to get to. Now if it's a self directed IRA or a self directed retirement plan of any type, it's much harder to get to because then the assets become scattered and they become hard to value and it's just much more complicated. I mean, it's dramatically more complicated. But the thing you know, I would really bet on, and I am betting on, of course, is that number one, the US has really good rule of law. It may not feel that way. You know, if you're bathing in the news media and you're seeing all the scummy things these politicians do and so forth, you know, you look at the way Obamacare was put through on Sunday night at 2 in the morning. I mean, it's disgusting. Nancy Pelosi We've got to pass the bill to see what's in it. I mean, you know, Obama has been like the least transparent president possibly ever, or at least in modern history, I would say. But you know, overall, I mean, the US has pretty darn good rule of law comparatively. You know, you go look around the world and I mean, yes, we certainly can have our complaints about the US government, but the question I always ask myself is compared to what? Compared to what? And when you say, when you ask yourself compared to what, the US is a pretty great place. I mean, it really is. And as you know, I'm, you know, an extreme traveler. I've been to 78 countries, so I think you're in pretty safe bet. And you put yourself on the side of the fragmentation again, very hard to get to these assets and that. It's a sacred cow. You know, real estate has always been this giant lobby. If the government's going to attack something, it wants to attack some small group where, you know, it's, it's a group that doesn't have a good lobby or you know, it's maybe politically correct to do and they can exploit class warfare. But a bunch of little mom and pop investors that own three houses, I mean, that's really hard to attack. And plus they're providing rental housing to people. So it would upset the whole equation there. Now there's one more point. Remember, with everything there's an equalizing factor. And so say for example, they did attack rental housing and they took away deductions like say, say they tried to take away the depreciation deductions. Well, what would that do in the marketplace? It would cause many investors to consider selling their properties and ultimately probably sell them because the investment wouldn't be as desirable. Or the investors would say, hey look, if I'm going to make this work, I've got to raise the rents. So there'd be upward pressure on rents. Or they might say, you know, all the investors considering entering the market would not enter the market anymore because they would say, hey, this thing isn't so good anymore. The deductions aren't as good or, or the interest rates aren't as good or whatever is not as good. So I'm not going to invest. And what does that do? As long as the population is growing upward pressure on rents. Okay, so that's the great beautiful thing about income property. It's a multi dimensional asset class. And remember, the government, just like anybody, is subject to market pressures and so are your tenants and so is the whole equation overall. All right. So I hope that answers the question. And good chat. I can't wait to play this on the air so the listeners can hear it.

All right. Well, thank you for suffering through that low sound quality. And I know my sound quality isn't that great right now because I'm traveling and I, I don't have my good microphone with me, of course. But anyway, I hope that was helpful and interesting to you. This is a bit of a long show. We're still going to go ahead and play the guest. And again, eight tickets left for Meet the Masters. Go to jasonhartman.com get your tickets for that if you're interested in Venture alliance venturealliancemastermind.com let's get to our guest, John Lieber.

Here he is.

It's my pleasure to welcome Jon Lieber to the show. He is the chief economist at Thumbtack and the former associate director of the National Economic Council at the White House and former economic and tax policy advisor to Senator Mitch McConnell. John, welcome. How are you?

I'm doing great, thank you.

Good. And you're coming to us from the Socialist Republic of San Francisco, is that correct?

That's right. I am in the heart of the city.

There we go. Good. Well, you talk a lot about the sharing economy and had some recent congressional testimony, I think. Tell us about that. And let's talk about thumbtack and how it can help real estate investors and what the sharing economy means to all of us as a whole.

Yeah, sure. So just a little bit about thumbtack. What we are is a marketplace for services. So we connect individuals who are looking to accomplish a variety of projects in their lives to small business professionals who could help them get the job done. We do everything from bathroom remodeling to balloon twisting to math tutors. So if you can imagine a service that you want to find, we probably have somebody that can help you achieve that goal.

Goal.

And a lot of the pros who are in our marketplace, if you ask them, they think of themselves as small business owners. There's a lot of excitement and a lot of press coverage today surrounding the so called gig economy and sort of this speculation about a new class of workers that's emerging who are using technology to help them find new work. And for the small businesses on our site, the issues faced in the gig economy are nothing new. They've been out there kind of hustling for jobs and working gig to gig for decades in some cases. And so I think when we think about the sharing economy and the gig economy and all these issues that technology is sort of empowering people to be able to work for themselves, we like to think about them through the eyes of our small businesses and how these issues affect them.

Okay, so what are some of the issues? I mean, of course you have people like Bernie Sanders who are trying to, at least so far as I know, classify everybody as an employee. Because God forbid workers shouldn't have the right to actually work when they want to. And the government's got to interfere in every relationship. It's just beyond ridiculous to me. Talk to us about some of these issues and some of these forces that are going on in the marketplace that affect the gig economy and the sharing economy.

Yeah, sure. So I think the first biggest kind of long term trend that you see happening is that technology is empowering anybody who wants to go find work for themselves tomorrow if they want to, through their smartphone. So 10 years ago or 15 years ago, if you wanted to find, if you had a, if you were a very talented photographer or an electrician, or you had a passion for catering and you wanted to do this, you wanted to start your own business, it was very hard to do. So you didn't know how to identify customers, you didn't know how to get started, you didn't know where to find new clients. And today there's a variety of technological platforms like thumbtack that allow you to go online, set up a profile, and then we start sending business to you. So what this means is that we're empowering people to work for themselves in a way that was never possible in previous generations. It isn't just happening with, with skilled professionals, though. It's also happening for people who own a car or want to rent out their apartment or don't mind standing in line at the Apple Store for somebody. These people now have the opportunity to go through things like Uber or Airbnb or TaskRabbit and find work quickly on their phone in a flexible arrangement that works really, really well for both sides.

It's interesting. I used TaskRabbit just last week for the first time and boy, I tell you, you can just, just go get someone to do your stuff. It's not, you know, these services cost some money. You know, this one was like $35 an hour. But, gosh, my time's worth way more than $35 an hour. So it's pretty interesting that all of these really very innovative ideas, all these, you know, entrepreneurs just come up with all these crazy ideas. That we never even imagined we needed this stuff. And that, that is constantly amazing to me.

Yeah, it is. I totally agree. I mean the real advantage of these platforms is that they're really expanding the realm of the possible for people who use them on both sides. So for the workers, it's allowing them to find some flexible work that they can turn on and off at their convenience. And for the consumers, it's allowing them to get things done in a more time effective way. So I used TaskRabbit a couple months ago because I had to get some stuff delivered from my parents house to my in laws house. And I hired a guy, I paid him $70, he drove, you know, about two hours, he drove about 70 miles and he delivered a car seat and it was fantastic. And I never could have had, I had to do that myself. It would have been half a day off of work. It would have taken me, I wanted to find somebody on Craigslist. I could have searched and found somebody. I don't know if I can trust them. But these, these platforms are, you know, bringing transparency to the marketplace and they're engendering some trust too between strangers and.

They can aggregate, aggregate insurance. Right. I mean, you know, frankly I didn't even think about it at the time, but I assume that there's some sort of insurance that TaskRabbit or you know, like Uber for example and Lyft. I think they have these master insurance policies. I'm sure it varies state to state, but you know, to kind of help the insurance issue. Because a lot of it, you know, that person running that errand for you crashes their car, you know you're gonna get a lawsuit. Right. So a lot of it is, is helpful in that way. They can kind of aggregate the insurance issues. Right. I mean, how does your platform thumbtack do that if you know.

So what we do is that we are, we're, we're like a platform for introductions. So what we do is you come to the site and you put a request in. We syndicate that request out to our list of pros and then you should expect a response from up to five pros who say they're interested and available to do the job. Because these, these pros are independent professionals who are running their own business. They often will have their own insurance and they'll have their own kind of branding and they'll have their own business that they're running off of thumbtack. So we're just trying to facilitate the introduction and arm consumers with enough choices and enough information to make an informed choice about who they want to hire. Platforms like Uber and TaskRabbit and a few of the other ones, Instacart, that people may be familiar with their model is more like they're pushing a Uber driver to you or they're pushing a task rabbit to you to help you accomplish your goal. So they have kind of a different arrangement with their insurance and liability and things like that.

So, John, you know, this begs the question of market prices for all this stuff when you, when you, you know, at first there was a lot of talk about how the Internet was disintermediating companies and people and allowing people to go direct. You know, there was a. I remember in the dot com bubble back in 2000, you know, everybody was saying, well, car dealerships are going to be put out of business because you can just buy a car now from the manufacturer online. You don't need a car dealership. Well, that didn't happen. And of course you see Tesla changing that model to some extent. But, but by and large, car dealers are still here. And we had the founder of Pro.com on the show recently, you know, so I was really excited about that and I still am conceptually. And of course Pro and your company, Thumbtack, are subject to market forces. And I believe that ultimately the free market will cause every price to adjust as it needs to adjust. But you know, one person said they looked at Pro and they thought it was kind of expensive. You know, you put someone in the middle, right, and what does that do to the price? Does the vendor have to raise their price now? Of course, they don't have to do any marketing. And the vendors can, can be busy now for once, which usually they're very inefficient at marketing and staying busy. I just wanted to kind of ask you to address that issue, if you would.

Yeah. So we think of ourselves by, you know, when we ask our customers or when we ask our pros, what's the biggest challenge they face in their business. It's finding new customers every time. They always tell us. I struggle with finding new clients. I don't know how to market myself online. I don't know how to find people. And our goal is to take care of that entire process for them. So we want to be the ones who push clients to them, who help them find customers and make that as seamless as possible so they can stay busy doing what they love doing. Which, you know, really varies depending on the profession. Some guys are really skilled electricians. They have no idea how to run Their business, they don't want to be bothered with it. They just want to do the electrical work. So our goal is to make it so they can just do their jobs and we handle all the marketing for them. We do charge for that. I mean that, you know, that's our business model and. But we're very cost effective. If you think about the options, somebody has to market themselves. They can, you know, in a previous generation it involved putting an ad up on the yellow pages and crossing your fingers, hoping for the phone to ring. That's not the case anymore. Today we're directly pushing willing clients to them and they're willing to pay for that because it's a performance based program. They're not just kind of wasting advertising dollars on a, you know, a billboard somewhere saying call Jim the Plumber. They're paying to respond to specific requests that it's up to them to market themselves to turn into a hire. These are high intent customers we're pushing towards them. I think that the economics are really fundamentally changing, becoming more performance based and more cost effective. They can choose whether or not they want to bid on a job. It's up to them. If they think it's worth it, they can spend the money, they get a great rate of return when they can successfully market themselves. And if they don't have the time or they don't have the inclination to do the work that week, they don't have to spend the money. So it's a great deal for the pros who are the ones that are paying customers.

So in the case of Uber and many of these platforms, it seems like they typically take about 20 to 30% as a fee for sending that customer over. Do you care to comment on what Thumbtack does?

Yeah, our take rate varies by category and if you, it's dependent on basically how expensive the category is. So we'll charge a little bit more for the introduction for say, catering, which tends to be jobs that are in the thousands of dollars than we would for handyman, which tend to be in the hundreds of dollars.

Okay, okay, good, good. So talk to us about, you know, the governmental aspect again, if you would, and the U.S. house subcommittee and you know, just, just what's going on in the government. Let's get a little more insight on that and then how it affects the economy.

Yeah, so it seems like there's a lot of interest in these issues of sharing economy and peer to peer platforms for peer to peer exchange, which is really what kind of the sharing economy actually is. Sharing is a sort of a misnomer for what these platforms are because no one's actually sharing anything. Everybody's selling something they have in exchange for money.

I have one guest coming up and, and I like the way he put it. Maybe you're using this too. You know, we talk about B2C business to consumer. We talk about B2B business to business. Well, he's calling it the H2H, human to human economy, you know, the H2H. So I thought that was kind of interesting. But yeah, it's not sharing. I mean, it's like you said. Right, exactly.

These are all just, all this technology is doing is facilitating exchange between people. And so it's getting people together, linking them up. It's saying, I have a service I can offer and somebody else saying, I have a job I need done. And it's getting them together in a really seamless, fast, cost effective way. And that's all these platforms are doing. So it seems to be generating a lot of interest amongst lawmakers today for a variety of reasons. The biggest one seems like that people are concerned about sort of the treatment of the workers in these sharing platforms. There's a variety of number of lawsuits against Uber right now for misclassifying their workers, allegedly misclassifying their workers as independent contractors instead of W2 employees. And there's, in my mind there's sort of two things motivating that. One is incumbents who are being disrupted by Uber.

Yeah, you've got the taxi mafia, I call it, which is, you know, this industry, like the former music industry before Steve Jobs changed it, that's been ripping us off for years, for decades.

Right.

And they don't like that their business model is being disrupted.

Yeah, that's exactly right. And they're fighting back every way they can. And you know, they should. Their economic interests are at stake and they're a very politically powerful and influential group at the local level. And they're, you know, they're doing everything they can. They're, they're throwing everything at Uber to try to stop them, including some of these, you know, helping to support some of these worker classification lawsuits. But there's also something else going on, which is people who have kind of genuine concern for workers and how they're being treated and whether or not they have access to the social safety net. And the social safety net in the United States today is this patchwork of programs that is, you know, some of which are state run, some of which are run entirely through employers, and some of which are kind of voluntary or you can Kind of opt into them on your own if you want. And this program works pretty well for folks who are full time W2 employees, and it's kind of designed for them, but it doesn't work so well for folks who are independent contractors, who are small business owners, who don't have access to a larger employer to help subsidize, say, their health insurance or provide them with a pension or a 401k match or whatever other aspects of the social safety net are that people are concerned about. So I think that in addition to kind of this inner industry competition that you're seeing, the government, people are using the government to play against each other. There's also this genuine concern about the well being of workers in these platforms.

But is that concern justified? I mean, you know, when I first learned about the website Fiverr many years ago, and that was really before, that was before I learned about Uber and Lyft and those kinds of companies, I think, you know, I thought, is there really any reason to ever be unemployed anymore? You know, it seems like, you know, a homeless guy, you know, using an Internet connected computer at the library, which by the way, the library is full of homeless people now, using Internet, the Internet. I mean, he can even do something if he wants to, right? It's kind of amazing. I mean, you have to be bang. You know, you have to have PayPal or something like that. Is there really any excuse to be unemployed anymore?

Yeah, you know, it's hard. It's hard to find even for skilled people. Like, you know, we have a lot of skilled people on our platform and some of them still struggle to find work. There's no guarantee that you're just going to go online and someone's going to shoot you a job because you say, you raise your hand and say you want one. You've got to kind of prove that you have the skill. You need to be able to get some reviews to people who can kind of vouch for you. And you kind of have to have something that you're selling that people want to buy. So there's definitely people out there who struggle with these issues. I think there's no better time than today to start a small business and go work for yourself because the costs of running it have never been lower. You can run your back office on intuit. You can find new business using thumbtack in your spare hours. You can take your car and go drive for Uber. There's just so many alternatives. But you kind of have to have this basic set of skills and a basic Kind of reputation in order to use those things correctly.

Yeah. Okay. All right, so talk to us more about the concept of the government interfering in the two parties that want to come together and do business. And I will give you an example, by the way, I was talking to a really ambitious Uber driver who was taking me home from the airport a couple of weeks. A few weeks ago, I actually pulled out my iPhone and asked him if I could videotape what he was saying. He said it better the first time, as would normally be the case, but he said he was really concerned about this idea of the government trying to make Uber drivers employees because he loved the control of having his own schedule, being in charge of his own life. You know, he just really had his head on straight, you know, and he knew there would be a bunch of additional taxes and fees undoubtedly if he became an employee. And so he really liked it the way it was. What do you think?

Yeah, I think that's right. I think that the system today works really well for a lot of the independent contractors who are in it and for the companies who are employing them. A lot of our small businesses on Thumbtack, you know, they need help to grow their business. They're landscapers who are of a huge seasonal spike starting in the spring, and they want to bring on a few guys to help them, but they don't want, they can't promise them jobs for the entire year. So making them W2 employees is a hugely burdensome task that adds a lot of cost and complexity to their operations. When they could just bring on a 1099 worker and kind of that guy is responsible for his own kind of well being and health care and things like that. And it's the same for Uber. You know, there's so much flexibility that these platforms bring that that sometimes gets lost when people are talking about how concerned they are about the well being of these workers. But the flexibility is something that really we shouldn't take for granted. And it's a huge boon to the Uber drivers and to a lot of other folks who are involved in this.

You know, the other impact that it has is for parents who are dealing with childcare issues. That flexibility, I mean, that's just precious. It's got to be precious to them. You know, I'm not a parent, but I would think that that's just got to be a huge benefit to them to have that kind of flexibility.

Yeah, absolutely. I mean, I think that, you know, a lot of Uber drivers you talk to are students. They're making money on the side while they're studying for some degree. And the only way to make this possible, like, you know, you're not going to be able to get a job at a bar that allows you to, you know, bartend at night and have some flexibility to study during the day when you know you have to stay set certain hours and you don't know what your schedule is going to be. But you can go drive for Uber. You can drive in the mornings if you want to. And there's just so many benefits from.

Well, I mean, I mean, it's more than that. You can. You can drive for 20 minutes, take a break for 96 minutes, drive again and take a break for 14 minutes and drive again. You know, it's. It's literally turning the app on and off. That's all it is, right?

Yeah, absolutely. Absolutely.

Yeah.

And this system works really well for these guys. You know, I think for people who want. It's great for the flexibility of making a living. You can choose a goal, you can say, like, I need to make this much money to go on vacation by this date, and you can go out and do that. And the flexibility really is something that I think is sort of forgotten about in some of the policy discussions. And taking that away by mandating these guys become W2 employees, that the cost of hiring them goes up, it just means that there's going to be fewer jobs available and it's going to be more expensive for everybody to take advantage of these services.

Why don't some people get that? It blows my mind that some people just don't understand that that will simply. Whenever the government interferes with stuff, it always leads to constraints on supply. I mean, people in the former Soviet Union, they used to wait in line for two days to get a pair of shoes. And. And I remember talking to one of my tour guides in Moscow once, she said, you know, by the time she got to the front of the line where she could get some shoes, they were all out of her size always. And so what they did is they had to create a whole new market after they would just take any size shoes they could get and then try and find people to trade them with to get the right size shoes. I mean, that's just insanity. And that don't think that that concept doesn't happen in the US To a lesser degree. So if you want to make Uber and Lyft more expensive and have a lower supply of drivers, just put the government in the way.

Yeah, absolutely. And I think that raising the cost here, the thing I Find really disturbing is let's say that Uber does lose these lawsuits and they're required to classify all of their drivers as W2 employees. They're required to give them benefits, they're required to pay unemployment insurance, they're required to pay workman's compensation for them. Nationwide, about 30% of the employer cost for labor is in benefits. So this would raise. So some of that cost be passed on to the workers in the form of lower salaries, some of that cost be passed on to consumers in form of higher fares. But either way, the costs are going up. Uber has raised billions of dollars. They can afford to deal with this, I imagine, or at least they can afford it long enough until they start develop getting robot cars on the streets. The people who are really going to be affected are the competitors who haven't yet started up.

Right. Well, and even Lyft, who has a lot less. That has a lot less money than Uber, right?

Yeah. So what you're going to see is less competition, less services provided in the marketplace, and you're going to entrench the position that Uber has today as the leader in the United States in ride sharing. And I don't think that's the situation anyone wants. I think what we want is an ecosystem that supports innovation, that supports disruptive companies, that supports competition. And by raising the cost of these companies operating, you're just shutting the door of opportunity for new competitors to enter.

I am so glad you said that, listeners. That is a brilliant key point that John just made. Okay? Because what you do when the government starts regulating, they basically create monopolies or semi monopolies, monopolies for the entrenched players in that market and raise the bar. So much for any new entrants. This is probably nowhere more true than it is on Wall Street. Okay. You know, if to be a public company, there is a massive amount of compliance that, you know, once you comply, you then are allowed to legally rip people off. That's, you know, basically how it ends up working. Pardon my cynicism, John, but, you know, try and take your small business public, you can't do it, right? Because you could not possibly afford the cost of compliance. These big players, Goldman Sachs, all the rest, they, they love regulation. Please. You know, they may say they don't, but secretly they love it because they know that ensures their place and it makes it very hard for anybody to come in and compete with them. And that's exactly what will happen if you want to see the market dominated by Uber and Lyft and maybe sidecar the three players that I, so far as I know, are the top, you know, and you don't want to see anybody new come in, then regulate the heck out of them. And that'll keep all the new entrants out because they can't afford to comply. They can't start up. John. I mean, I think that's a. A critical point of how economics and markets work.

Yeah, absolutely. And, you know, I think this is something that this isn't a point I've heard discussed a lot is kind of who will be the next Uber, and what does it mean if we start regulating them and if we force them to raise their labor costs? And what does that mean for the future of these platforms?

Yeah, yeah. Very interesting. Okay. Anything else? You want to share a question I haven't asked you, Just, you know, about the more governmental and economic side or about thumbtack itself in terms of this regulatory issue?

I think that all these issues are really, really critical, both for new, growing technology companies and how they're going to relate to the government. But I think it's important to keep in mind that there are a lot of millions and millions of small businesses in the United States that face these same issues and that are out there every day struggling to get ahead, and they deal with government in their own way. And so to that end, Thumbtack has been trying to better understand the climate for small businesses across the country. And every year we run a survey and we receive about 20,000 responses from businesses across the country where we ask them tell us what works and what doesn't work about your small business and about your local government. And we grade every city and every state that we can from A to F just to try to understand better who has the best environment and what makes the best of environment for the kind of small businesses on our platform. And we think this is a really important part for us as a company. We think it's a really important message to get out to the world that, you know, the government. One of the biggest challenges small businesses face today is in a friendly government environment. And so we want to help people know what that means and how to improve their local economy.

Yeah, Good stuff. So the website is thumbtack.com John, are there any other resources you want to give out to people? A Twitter feed or anything more on your governmental side or just anything else?

Yeah, go to thumbtack.com we have a lot of resources on our blog. It's thumbtack.com blog. We also have a page for our survey work. Where we're surveying our small businesses. That's thumbtack.com survey and you can follow me on Twitter 2K. It's L I E B as in boy E R2K 2K.

Jon Lieber, thank you so much for joining us.

Great. Thank you.

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